Lira Falls as Erdogan Warns of Attack on Syrian Kurds Any Moment

(Bloomberg) -- Turkey’s currency weakened for the first time in three days, extending early losses against the dollar on Monday after President Recep Tayyip Erdogan warned of a potentially imminent offensive against a Kurdish stronghold in northwest Syria, raising the prospect of further escalating tensions with the U.S.

The lira slumped as much as 1.5 percent against the dollar to 3.8034 as investors assessed the possibility of an open confrontation with U.S-backed Kurdish militia in Syria. The declines pushed the dollar-lira cross past the pair’s 21-day moving average, a key technical level, and near this year’s highs.

Turkey regards the Kurdish fighters as affiliates of the PKK, a separatist group fighting for autonomy in Turkey’s southeast, and is concerned that U.S. support for the forces will give them cover to stage attacks on Turkey. But a face-off with the U.S. proxy could exacerbate the county’s already strained relationship with the U.S., a key NATO ally. Investors are on tenterhooks over the potential fallout after a Turkish banker at state-owned Turkiye Halk Bankasi AS was convicted in a New York court for helping Iran evade U.S. sanctions.

“I still think that a unilateral Turkish operation into Syria without green light from other forces on the ground is low probability,” Inan Demir, an economist at Nomura Plc. said by email. “But obviously the rhetoric is very harsh and the shelling, tank deployment stories are scaring people, I think.”

Turkey deployed more tanks and armored carriers on the Syrian border, while Turkish army units fired dozens of shells toward YPG positions in and around Afrin, Syria on Sunday, state-run Anadolu Agency reported.

Turkey’s National Security Council, which advises on military actions, is scheduled to meet on Jan. 17. Turkish officials vowed similar action on several occasions last year.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Marco Bertacche, Keith Jenkins

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